Trump's CAD Blunder: Loonie Rises Despite Trade Tensions

The Canadian Dollar (CAD) has continued to rise despite President Trump's comments about a currency 'imbalance' between the US and Canada. According to Scotiabank, the bank's valuation model puts the USD/CAD exchange rate close to its estimated equilibrium of 1.3756, suggesting that the CAD is not significantly out of line with underlying fundamentals.

The USD/CAD exchange rate has been edging lower over the past few days, falling by 0.03% on Wednesday following declines of 0.23% on Monday and 0.20% on Tuesday. Oil prices have helped support the Canadian Dollar, with WTI's surge beyond $90 lifting the price of a major Canadian export.

Scotiabank interprets Trump's comment as 'political signalling rather than a clear currency policy shift', but warns that deliberately weakening the US Dollar could disrupt capital flows and complicate the Fed's inflation fight. The bank sees no obvious grounds for treating Canada as a currency manipulator, citing its trade and current-account position and history of allowing the currency to float.